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Stablecoins and Banks

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1 hour ago, Wandering_Dog said:

You'll have to explain the mechanics behind a margin call on an instrument that isn't created on margin, I don't get it.... :sarcastic: Or do you mean people are using credit ("margin") stable coins to purchase other securities?

You need to look at the financial setup on how these "stable coins" math is set up. It is essentially a margin loan in fiat, with a digital asset as the underlying.

The setup is coded in smart contracts, which will auto execute per market conditions.

There is fiat credit being created, but via business methods that more resembles Margin rather than an auto/credit card type of loan from a bank.

I think this is a result from the Narrow Bank / Exchange business model being 100% collaterallized, and due to the methods necessary to create credit on the basis of a digital asset differing from fractional reserve methods. 

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On 2/7/2019 at 5:54 AM, GiddyUp said:

I don't believe I'm the only one who thinks the introduction of so many new "stablecoins" just creates more friction and headaches?

And welcome to the forum @Stellios   :crigon_04:

 

I agree with you, the creation of so many stablecoins creates mistrusting, they have not proved their worth yet

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9 hours ago, KarmaCoverage said:

You need to look at the financial setup on how these "stable coins" math is set up. It is essentially a margin loan in fiat, with a digital asset as the underlying.

The setup is coded in smart contracts, which will auto execute per market conditions.

I don't get it either. Which stablecoin are you looking at here? 

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2 hours ago, jcdenton said:

I don't get it either. Which stablecoin are you looking at here? 

https://a16z.com/2018/12/20/stablecoins-why-matter-what-how-daos-maker/

Essentially they allow a user to deposit 100 digital assets, and borrow 30-40% of that value denominated in fiat.

If the value of the digital asset drops, either the user needs to deposit more digital assets, or pay the loan down so that is is back under the 30-40% limit.

This is managed by a smart contract, so when the market drops the business logic will auto execute and (assuming the user does not take the above actions) the smart contract will begin to sell the digital.asset at the market price, until the 30-40% limit is achieved. 

I used to take these calls for Fidelity, more than once the system was wrong and my role was to be the human in the process who could short circuit the system liquidating the user's account, if necessary...  otherwise we would sell everything to cover the margin loan, then sell the kid's college savings, and one guy lost his house. It's not a joke when you are facing a margin call, and it never happens on a "good market day".

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14 minutes ago, KarmaCoverage said:

Essentially they allow a user to deposit 100 digital assets, and borrow 30-40% of that value denominated in fiat.

Can't listen to the podcast right now, so you're talking about borrowing on top of it, not how the stablecoin is set up? A stablecoin does not need smart contracts to remain stable.

I'm not sure how much borrowing is actually happening. Trust is in such short supply that people won't even keep their coins on exchanges... 

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Just now, jcdenton said:

Can't listen to the podcast right now, so you're talking about borrowing on top of it, not how the stablecoin is set up? A stablecoin does not need smart contracts to remain stable.

I'm not sure how much borrowing is actually happening. Trust is in such short supply that people won't even keep their coins on exchanges... 

The creation of the stable coin = borrowing

The value of the stable coin, is credit based upon the digital asset underlying 

Unless I misunderstood it, it sounded a lot like the stable coin was essentially a margin loan setup.

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2 minutes ago, KarmaCoverage said:

The creation of the stable coin = borrowing

The value of the stable coin, is credit based upon the digital asset underlying 

Unless I misunderstood it, it sounded a lot like the stable coin was essentially a margin loan setup.

Alright, well that does sound like a terrible idea :bomb: 

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Just now, jcdenton said:

Alright, well that does sound like a terrible idea :bomb: 

Its "financial innovation", but just like rampant margin did, it could set up a 1929 style situation for the digital asset markets.

I guess it strikes me like Auger "the prediction market", which is just binary options. 

And XRPLedger which is essentially a clearinghouse for settlement.

A lot of new ideas are old ones taking a new form, decentralized.

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1 minute ago, KarmaCoverage said:

Its "financial innovation", but just like rampant margin did, it could set up a 1929 style situation for the digital asset markets.

I guess it strikes me like Auger "the prediction market", which is just binary options. 

And XRPLedger which is essentially a clearinghouse for settlement.

A lot of new ideas are old ones taking a new form, decentralized.

Raccoons coming to town. 

https://www.epsilontheory.com/too-clever-by-half/

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@Stellios  a bank coin could be used for payment. Like the JP Morgan JPM Coin announced today.
In fact, that's the entire purpose of JPM Coin - to make on-chain payments.
https://www.ledgerinsights.com/jp-morgan-jpm-coin-blockchain-payments/

Otherwise why on earth would you need a coin to move money from one client's JPM account to another.

Most of these bank coins are being thought up for forex and capital market transactions. 
But they could be used for trade finance as well. Particularly for large corporates.

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1 hour ago, nm01 said:

@Stellios  a bank coin could be used for payment. Like the JP Morgan JPM Coin announced today.
In fact, that's the entire purpose of JPM Coin - to make on-chain payments.
https://www.ledgerinsights.com/jp-morgan-jpm-coin-blockchain-payments/

Otherwise why on earth would you need a coin to move money from one client's JPM account to another.

Most of these bank coins are being thought up for forex and capital market transactions. 
But they could be used for trade finance as well. Particularly for large corporates.

When every bank has their own competing stablecoin, that is even more of a reason to use XRP.

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On 2/6/2019 at 2:27 PM, NightJanitor said:

Yup, after Davos, I kind of expected a bunch of people to go home with the "we'll build our own!" idea...  It'll take them a minute to realize counterparty risks and scale issues.

Hopefully they don't waste too much time/money on that.  Also, you might not wanna volunteer to be on that team, if you'll take the hit when he figures out it won't work.  :rolleyes:

Just bumping this thread - which is filled with good information from a variety of perspectives - in light of JPM's announcement, today - in the hopes that people will learn.

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1 hour ago, NightJanitor said:

Just bumping this thread - which is filled with good information from a variety of perspectives - in light of JPM's announcement, today - in the hopes that people will learn.

Good luck with the lemmings learning anything. I dream of a world without FUD, especially in journalism

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50 minutes ago, DannyRipple said:

I dream of a world without FUD, especially in journalism

I dream of a world where all journalism is backed by research, approached with an open mind, and dedicated to reporting the facts from all facets. Unfortunately, this takes time that most journalists don't have with their deadlines and daily (or now hourly) reporting requirements. Things are always moving so quickly, and all issues are moving targets...

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18 hours ago, gamblin310 said:

When every bank has their own competing stablecoin, that is even more of a reason to use XRP.

I remember a prediction in 2017 (Edit: it was Brad) where they said that you will see banks issuing their own stablecoins, but it would be walled gardens. And indeed XRP would be the perfect asset to connect all those gardens troughout the world.

Banks issuing their assets proves the problem exists. And still no bank wants to use another banks coin but only their own or a third party. Small banks hate the big guys, and even more hate paying them to transfer their customers money over te planet. A third party like Ripple is in the perfect position to connect them all.

I see the JPM coin as a new way to let liquidity flow into the digital payments and settlement space eventually.

Edited by Caracappa

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